The Manufactures Terms of Trade and Global Value Chains

EasyChair Preprint no. 5900

Abstract

This paper analyzes the terms of trade of manufactures exported by developing countries relative to manufactures exported by developed countries. The empirical analysis shows that negative shocks to manufacture terms of trade observed in the 1980s and in the 2000s, when China was admitted to the WTO, have persisted over time. Developing countries’ manufacture relative unit values now represent about 30 per cent less than in 2000 and about 50 percent less than in 1980.

Concurrently, developing countries have been integrated in manufactured goods global value chains, led by large firms typically based in developed countries and relying on complex networks of suppliers around the world. There may be a “Prebisch-Singer Trap for the Twenty-First century”. It would respond to the asymmetry of market structures along global value chains, as oligopoly lead firms seek to promote competition and risk-bearing among suppliers, implying a systematic downward pressure on the price offered by supplier firms. This may be valid for manufactures of low and high-skill intensity and for low and high-tech manufactures. On the contrary, there are no signs that the trap for the 21st century affects manufactures of medium skill and technology levels, for which the terms of trade do not increase or decrease. In addition to being lower on average, manufacture unit values may grow more slowly in developing countries than in developed countries. 

In a global value chains world, the demand for most manufactures exported by developing countries comes not from the final consumer but from the buyer in the upstream chain. Manufactures exported by developing countries have “commodity-like” characteristics. One of them is that producers in developing countries are price takers. Another is that the product is not distinguishable from that of competitors, yet it must abide by external quality standards.

Keyphrases: Commoditization, Global Value Chains, manufactures, Prebisch-Singer hypothesis, Terms of trade

@Booklet{EasyChair:5900,
  author = {Mariangela Parra-Lancourt},
  title = {The Manufactures Terms of Trade and Global Value Chains},
  howpublished = {EasyChair Preprint no. 5900},

  year = {EasyChair, 2021}}